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A Practical Strategy for Wealth Abundance

A Practical Strategy for Wealth Abundance

Stop saving money instead start investing for passive income

Master Investor
April 12, 2024

Summary:

It takes spending and investing wisely for money to build wealth.
We shall avoid cutting expenses when are building wealth.
Focus on expanding our asset column with real assets that we control with our companies.
We need more than just savings for a rainy day.
Having emergency funds on hand gives us security in difficult times.
The secret to a wealthy future? Acquire Cash-Flowing Assets

"A dollar saved is a dollar earned," most people would also believe that to be true which is far away from it.

The issue and wrong perception of money steams from the lack of financial education and experience regarding monetary laws and its fluctuations. Most people will spent an entire life saving their hard-earned money, but most are unaware that after 1971, a dollar was no longer considered money. It became debt, monopoly, fiat, paper, fake, currency, and idea backed by confidence.

President Richard Nixon altered the money regulations in 1971. The U.S. dollar became a currency in that year, instead of just money. Few people know why this was one of the most significant shifts in contemporary history.

Why is saving money a difficult path to wealth?

Most likely, one of our many blogs about why savers are losers has caught our attention.

It is accurate, too. It is extremely risky to assume that savings would guarantee a stable financial future in an economy that is heavily reliant on debt and inflation.

Almost nothing, actually.

Working hard and saving money will not get a person to be rich and financially secure.

Saving money looses money and we must realize that such strategy is poor for grown wealth.

Every time we touch money we shall have a plan for it to multiple it successfully.

An important insight is that inflation is a factor depleting the poor’s finances but enriches the wealthy’s finances. We use inflation to create money for noting.

For example: Fifty years later, $1,000 in cash under your mattress would only be worth $153.04, compared to $1,000 in 1974.

On the other hand, assuming a 6% rate of return, the same amount invested with compound interest would have increased to roughly $20,000. It grows to about $7,000. That's even if you just get a 4 percent rate of return.

We presumably already know this if we read our content on a regular basis. Discovering that, even at the age of thirty, many were ignorant of the devastation that inflation could do to the financial illiterate.

Now, we realize that saving money as strategy to become wealthy sounds ridiculous to some people who know about financial education. However, we had no knowledge of financial matters. Although we are aware that inflation seemed quite macroeconomic, most people never get to make the connection between it and actual savings.

This emphasizes a crucial lesson about financial ignorance: it may be very expensive and it's not fun.

The inclination toward optimism bias

On the other hand, believing a person don't need any savings at all is even more financially stupid, according to a report published by bankrate.com.

According to the poll, 25% of participants have no emergency savings at all, and nearly half of respondents don't have enough funds to cover three months' worth of living expenses in the event of a financial emergency. Perhaps even more concerning is the fact that 18% think they will not have a financial emergency and that's okay.

According to a USA Today story on the poll, people's apathy toward emergency savings is probably caused by the fact that they don't witness others in their lives going through difficult times, leading them to believe that their turn will not come.

This is known as optimism bias in psychology.

Two varieties of optimism

Being optimistic is beneficial. In fact, there are others who contend that without a healthy dosage of it, success in life is unattainable. Nonetheless, optimism comes in two flavors. While the other is based in fantasy, the first is rooted in reality.

Imagination versus grounded optimism

"Nothing bad is going to happen to him or her and they always be taken care of so they don't need to worry about money," is the optimism rooted in fantasy. A riskier version may be something like this: "He or she knows they need to take care of their finances, but they will have time to do it later." Naturally, that time never comes.

It is inevitable sometimes that may find ourselves in hard times financially, but we know that we can outsmart those hard times by investing in our financial education, is a statement of realistic optimism. This optimistic outlook prepares us to be the captain of our own financial destiny while simultaneously acknowledging reality.

To put it plainly, fantasy optimism relies on forces outside our control to protect us. A realistic optimism believes that our own resourcefulness will keep us thriving and abundant.

We can put things off for a wet day through investing

Recall that saving for a rainy day is OK. This is not a story about saving being forbidden.

This is an outdated way of thinking that ignores how money has evolved and believes that money is just a piece of paper that loses value if it isn't used for investments.

Cash depreciates over time due to the inflationary nature of our economy. Conversely, the value of assets fluctuates in response to inflation. We must understand the three forces that prey on the wealth of individuals who depend on savings if we hope to prosper financially.

First reason not to save money: taxes

Those who save and work hard find it difficult to accumulate wealth because, on average, they pay more in taxes.

Savers were subject to income tax, capital gains tax, sales tax, and estate tax as they earned, saved, spent, and transferred their money.

The government taxes savings instead of providing a tax relief for a reason. As previously said, tax advantages are provided by the government to promote desired behaviors. Even though it gives it a lot of lip service, the government does not truly want to encourage saving because debt is what drives economic growth.

Why does this occur? Because debt generates greater money and wealth—for those who know how to use it—in economies supported by fiat currency. Savings doesn't work that way.

Therefore, if we save money, taxes will make us lose money.

In addition, the wealthy father revealed that savers were severely impacted by a concealed tax known as inflation.

Second reason not to put money away: inflation

We explained why savers nearly invariably end up losing money in the economy with the straightforward amount of $1,000.

Our $1,000 is immediately eaten away by inflation, so each year it is worth less.

Inflation and taxes ate away at the interest the bank paid us every year. Capital gains taxes grabbed 30% of the interest earnings from the government, while inflation ate away at nearly all of the remaining amount, if not more.

As previously indicated, $1,000 saved fifty years ago would be $153.04 in value today.

When we are a saver, it, along with taxes, implies that we are losing money on the purchase power of our money. For this reason, the wealthy understands that saving money and working hard for it were the only, if not the hardest, ways to become wealthy.

Therefore, savers lose out on inflation as well because of fiat money.

Reason #3: Refusing to take on risk

When a people put a lot of effort into saving money, their savings become their "security." Those who devote all of their work to conserving money find it difficult to venture out and invest it because they are afraid of losing all of their hard-earned cash.

People who save and work hard often think investing is risky. And we stop learning when we believe something to be dangerous.

Most people choose the "safe" path of conserving their money since it is what they know and understand, rather than taking the perceived risk of investing and seeing their money grow enormously.

Sadly, as we have already discovered, saving is not risk-free.

Because it involves investing and paying taxes, it's actually the riskiest way to use your money.

The winners in a fiat money system are the ones who take chances and make debt-based investments in order to produce more fiat money. Hoarders are not rewarded by the system. The fiat money system's primary goal is to increase wealth through debt. Saving goes against this. That's why saving money and being wealthy are difficult tasks for the government. If they truly want this, they would implement rules that would facilitate it. However, they don't

But hold on, there's still another smart approach to save

Aside from emergency reserves, funds set aside expressly for investing are another beneficial type of savings. It's known as "pay ourselves first." On our balance sheet, our funds for investments should be treated as a part of your expenses rather than as an asset. It ought to come first because it is by far the most significant expense we have.

No matter what we shall never push out their investment funds to pay collectors if we are behind bills or consumed in bad debt. The key is to focus all energy in the asset column and then once cash flow begins to come in then we pay the bad debt off with the income of the business or investment.

We must put investing and financial education as a priority expense on our asset column.

Invest the savings and purchase cash-flowing assets

We should work on choosing the ideal asset to invest in that will generate cash flow at the appropriate return while we set aside money for investments. Whatever piques our attention might be real estate, business, or technical stock trading.

However, you will also need to invest in financial knowledge for this, and the biggest cost will be our time.

Realistic optimism: as our knowledge of finance grows, so does our self-assurance that we can get through any financial challenges.

Fortunately, we may begin investing, increasing our investment fund, and developing our financial literacy at any moment. The greatest way to make sure we don't end up poor and broke is to get started right now.

Give up blaming others and act now

Consider it. We only have one direction to go if our finances are at their lowest point (or if we are not improving as quickly as we would want) and we are caught in the aforementioned figurative rut.

It's time to take charge of our life and expect more of ourselves.

Give up making excuses. It's time to challenge ourselves to do better!

Living is an endless learning process, and ceasing to learn is ceasing to exist. It's true that we will make errors, but we will grow from them. And we will avoid mistakes by learning from our mentors daily. Taking action is what matters most.

Place ourselves in a situation where we must go above and beyond what we believe is possible.

Adopt an entrepreneurial mindset

This is not to argue that small businesses are superior to large ones. Instead, large corporations still need to think like tiny ones and vice versa, particularly in this day and age of constantly evolving data.

Inventiveness is essential. The only people who will survive are those who can invent swiftly and keep up with the rapid growth and velocity of technology. And in this area, entrepreneurs are typically in the lead. The wealthiest people are entrepreneurs, and the best businesses are those that keep thinking like wealthy entrepreneurs and inside investors.

Kodak for falling behind the rapid advancement and development of technology

Kodak declared bankruptcy in 2012. They had dominated the photography industry for years, but suddenly they were faltering. Why? Kodak was unable to keep up with the rapid advancement and development of technology in the face of the emergence of digital photography. They believed they were too powerful to fail.

Sadly, they weren't. The worst thing is that Kodak could have easily been the first to market because it created digital photography years earlier. Rather than using the technology, they avoided it out of fear of eating into their primary line of business, which is traditional photography.

They are hardly the same company as they once were, with other businesses that recognized the promise of digital photography being the only ones that are now eating into their primary business.

The definition of insanity and the necessity for speed

Kodak was "seeking permission to pay about 300 executives and other employees a total of $13.5 million in bonuses to persuade them to stay with the company as it reorganize[d] under bankruptcy-law protection," according to a Wall Street Journal report from 2012.

Why did Kodak wish to give rewards to the executives who managed the company's bankruptcy? According to the New York Post, "It would be challenging to replace the targeted employees if they left to pursue other offers because they have knowledge and skills critical to helping the business emerge from Chapter 11."

Doing the same thing over and over again and expecting different results is the definition of insanity, as the saying goes. Kodak required fresh perspectives and individuals who recognized the importance of speed in the Information Age. Instead, they gave the dinosaurs rewards. A corporation would only reward the employees who ran it into the ground in an attempt to keep them on board to solve the problems they caused, if it were still operating in the stone age of the Industrial Era.

Such attitude demonstrated a lack of awareness that Kodak needed to adapt to the changing reality in order to succeed. Kodak decided to continue using more traditional, slower, and more comfortable methods in a world where speed was essential.

Recognizing the what but lacking the why

It was not a lack of talent that forced Kodak, formerly the industry leader in photography, to declare for bankruptcy; rather, it was the failure of the talent they wished to keep.

Kodak failed to stay ahead of the curve and innovate. As a result, they were unable to keep up with the transition from film to digital technology, first losing market share to Japanese competitors.

Kodak was aware of the necessity of digital technologies (the what), but they were ignorant of the reasons behind people's use of them (the why). Rather, they adopted an Industrial Age mindset by depending on digital technologies, which encouraged people to print images.

The values of the Information Age have evolved. In the past, having photos printed cost a significant amount of money. They then spent further money on photobooks to store them in and frames to display them in. These sectors are currently being supplanted by cloud-based photo storage services and smartphones.